End-of-Mission press releases include statements of IMF staff teams that convey preliminary findings after a visit to a country. The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF's Executive Board. Based on the preliminary findings of this mission, staff will prepare a report that, subject to management approval, will be presented to the IMF's Executive Board for discussion and decision.
- The Nepali authorities and the IMF team have reached staff-level agreement for the fifth review of Nepal's economic reform program supported by the IMF's Extended Credit Facility (ECF) arrangement. The staff-level agreement is subject to approval by the IMF Executive Board which will give Nepal access to about $40.6 million in financing.
- Following disruptions from recent floods, the recovery is expected to strengthen in the second half of FY2024/25, supported by stronger public capital expenditure, including on post-flood recovery and reconstruction efforts.
- The authorities are making progress on key structural reforms to improve the anti-money laundering framework, reduce fiscal risks, and strengthen the financial sector.
- Completion of the review by the IMF's Executive Board requires progress in key steps for launching the loan portfolio review and maintaining reform momentum.
Washington, DC: An International Monetary Fund (IMF) team led by Ms. Sarwat Jahan visited Kathmandu during Jan 8 to Jan 19, 2025. After constructive discussions with the Nepali authorities, Ms. Jahan issued the following statement at the end of the mission: "The Nepali authorities and IMF staff reached staff-level agreement on the policies and reforms needed to complete the 5th review under the ECF ( see Press Release No. 22/6 ). 1 The agreement is subject to approval by the IMF's Executive Board. Upon completion of the Executive Board Review, Nepal would have access to SDR 31.4 million (about US$40.6 million), bringing the total IMF financial support disbursed under the ECF to SDR 219.7 million (about US$283.9 million), from a total of SDR 282.42 million.
"Nepal continues to make progress with the implementation of the ECF-supported program. Program performance was satisfactory, with all quantitative performance criteria and indicative targets for end-July 2024 met except for the indicative targets on revenue collection and child welfare grants. Implementation of structural benchmarks due before end-December 2024 gained momentum, with reforms in some areas still ongoing. Key reforms accomplished as a part of the fifth review include amendment of Nepal's anti-money laundering (AML) law, strengthening the financial oversight of public enterprises, and completing an audit of the FY2023/24 financial statement of the Nepal Rastra Bank (NRB) involving the service of experts with international experience in auditing other central banks. Despite the cancellation of the initial procurement for the Loan Portfolio Review (LPR) of the 10 largest banks, the NRB remains committed to completing the review and has restarted the process to hire an independent international consultant to assist with the LPR.
"The economic recovery that began in FY2023/24 was disrupted by the severe floods in September 2024, which caused widespread damage across critical sectors and further dampened the still-weak domestic demand. Inflation accelerated to 6.1 percent in December 2024 due to spike in food prices following the floods. Nepal's external position continued to strengthen, bolstered by robust remittances and subdued imports. Accordingly, revenue growth remained modest. Amid the ongoing correction from the post-pandemic credit boom, vulnerabilities in the financial sector are increasing, with the banking sector's non-performing loans reaching 4.4 percent in October 2024, and the financial health of the savings and credit cooperatives (SACCOs) sector deteriorating.
"Growth is expected to gather pace, exceeding 4 percent in FY2024/25, supported by stronger public capital expenditure, including on post-flood recovery and reconstruction efforts.
Relatedly, imports are expected to rebound in the second half of the year. Flood-driven food inflation is expected to ease as transport networks are repaired and agricultural output recovers improving the food supply. However, the outlook is subject to important downside risks, including under-execution of growth-enhancing capital projects, an increase in financial sector vulnerabilities, and potential disruption to policy continuity and reform implementation.
"Against this background, policies and reforms envisaged under the ECF-supported program remain well-placed to help preserve macroeconomic stability and strengthen Nepal's policy framework. Growth-friendly fiscal consolidation—by accelerating capital expenditure coupled with stronger revenue mobilization—is critical to boost sustainable and inclusive economic growth. Timely execution of spending will further support this effort. Monetary policy should continue to follow a data-driven approach to maintain price and external stability while supporting growth. With amendments to the AML Law enacted, the next steps would be to focus on the effectiveness and application of the new legal framework. Amendments of the NRB Act are key to strengthen the central bank's independence and governance.
"Rising financial sector vulnerabilities warrant increased vigilance. In this context, it is essential to launch the LPR in a timely manner. An important component of the LPR would be to apply the Basel Committee on Banking Supervision Guidelines. Prioritizing measures to deal with problematic SACCOs would help boost consumption.
"The IMF team held meetings with the Honorable Deputy Prime Minister and Finance Minister Mr. Bishnu Prasad Paudel, the National Planning Commission Vice-Chairman Honorable Dr. Shiva Raj Adhikari, the Nepal Rastra Bank Governor Mr. Maha Prasad Adhikari, and other senior government and central bank officials. The IMF team also met with representatives from the private sector and development partners."
"The IMF team is grateful to the Nepali authorities for their hospitality and for open and constructive discussions."
